In the process revolution since WWII, we have seen every business function discover that input-process-output descriptions of activities followed by a “say what you do, do what you say, be able to tell the difference” feedback structure are the key to long-run success. Firms need to evaluate and consolidate these planning and control systems into a single fully integrated system, since they are all attempting to reach the same goals using the same tools. There are at least five different sets of systems independently active in most firms today.
Strategic planning systems operate at the highest organizational level, attempting to evaluate the situation, set direction, identify critical success factors, define strategies and key performance indicators, and approve major investments and projects. More evolved frameworks, like the balanced scorecard, attempt to link strategic goals to operational performance. Many firms have learned to link strategy to measures and projects.
Modern financial planning and control systems have evolved for more than 100 years. Strategic plans are translated into long-term financial plans to guide borrowing, investment, operations and risk analysis decisions. The financial plan is translated into a negotiated annual budget. A financial performance management system evaluates managers against business unit, department, product, customer and project goals. The key transaction processes are defined and monitored.
Risk management has evolved to become a separate discipline apart from classic P&L management. Regulatory compliance and external financial reporting have become more technical and legal. Internal controls have moved to secondary and tertiary levels of safety with an emphasis on “defensible positions”. Emergency preparedness and disaster recovery have developed into new disciplines. Risk management tools have evolved from insurance policies to include hedges, contracts and outsourcing.
Human resources systems have grown to become parallel factors. The regulatory side has greatly increased the emphasis on compliance and risk reduction. HR performance management systems have become linked to business performance through SMART goals. HR has been charged with helping managers professionally address frequent change management issues. HR has also become a senior management partner in attempting to create cultural alignment.
The process or quality systems approach has been the greatest innovator. At the highest level, a management or total quality management system attempts to incorporate all activities. The quality approach requires clearly defined customer goals. All processes must be defined and documented at the staff and system level. Operations measures are defined to provide simple and direct feedback. Quality goals are set and quality improvement is defined as a separate goal. Processes are defined within the generic framework of product, sales and delivery. IT systems are positioned as facilitators, requiring technical and user documentation. Individual application systems become more complex, incorporating best practices, but allowing many exceptions. Change management becomes a sub-discipline, with growing project management expertise. Process changes are driven by re-engineering, kaizen and continuous process improvement efforts.
Ideally, a firm defines and operates a single planning and control system which integrates the strategic, financial, risk, human resources and quality management dimensions. Failure to integrate these components leads to added costs, political conflicts, waste and missed opportunities. A performance management cross-team with representatives from sales, product management, finance, HR and operations is needed to coordinate this effort.
There ARE many components. We need to overcome the desire to have a fully integrated system that encompasses all possible components as exhibited by the US military in their Afghanistan plans.
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